Today,Chrysler says Fiat takeover complete.The move allows the U.S. automaker to emerge from bankruptcy six weeks after filing for Chapter 11 protection, and again puts the company in foreign hands.
For the second time in a decade, Chrysler finds itself in foreign hands.
The embattled automaker said this morning that it had completed its deal to be acquired by Fiat, forming a new company run by the Italian automaker and allowing it to emerge from bankruptcy.
The step came just hours after the Supreme Court cleared the last obstacle to such a deal, issuing late Tuesday a two-page order refusing to stay the sale over objections of some creditors.
Fiat will take a 20% stake in the new Chrysler and Fiat Chief Executive Sergio Marchionne will serve as the top official at Chrysler. Chrysler's chairman will be Robert Kidder, who was selected for the role last month.
The largest stakeholder in the company will be the United Auto Workers union, which is receiving a 55% share in exchange for about $6 billion owed to a retiree healthcare trust. The U.S. government, which has lent Chrysler $8.6 billion to date and will contribute more in exit financing, takes an 8% share, while Canada, another lender to the automaker, gets 2%.
The company will have a nine-member board, with four positions chosen by the U.S. government, three by Fiat, and one each by the Canadian government and the UAW.
Over time, Fiat will have the option to increase its stake to 35% or more in the company.
It, however, is not contributing any cash to the deal. Instead, Fiat has agreed to give Chrysler access to its automotive technology, particularly small, fuel-efficient engines.
In closing the deal just six weeks after Chrysler filed for Chapter 11 protection, the two automakers put an end to a painful period for the smallest of the nation's automakers, which only two years ago was sold by German automaker Daimler after that alliance proved unworkable.
"This is a very significant day, not only for Chrysler and its dedicated employees, who have persevered through a great deal of uncertainty during the past year, but for the global automotive industry as a whole," Marchionne said.
That uncertainty now hovers over General Motors Corp., which followed Chrysler into bankruptcy by filing a Chapter 11 petition on June 1. GM is a far larger, more complex company with a larger international reach, and its bankruptcy proceeding is expected to take twice as long as those of Chrysler -- if there are no unexpected hitches.
Chrysler's largest potential hold-up, a temporary stay on the sale placed by Supreme Court Justice Ruth Bader Ginsburg on Monday, was whisked away a day later.
Although a group of Indiana pension funds had argued that the mechanics of the deal, which had creditors sharing the $2-billion sale price of Chrysler for $6.9 in notes they held in the company, was unfair and did not respect traditional rules of priority in such cases.
In refusing to stay the sale on Tuesday, the high court did not consider the merits of that argument. Instead, it seemed to bend to concerns of expediency, in part perhaps because Fiat held an option to exit the deal if it were not closed by June 15 and because the federal government had argued to a lower court that Chrysler was losing $100 million of taxpayer money every day the sale was held up.
With the sale now completed, Chrysler can breathe a bit easier. But its new leaders have their work cut out for them.
In a tough automotive market, Chrysler's sales have fallen faster than any automaker -- down 46% through the first five months of the year.
It has excess capacity and essentially no vehicles in the compact and small classes. In short order, it must radically reshape its production, while determining how to incorporate into its line-up vehicles from Fiat, which hasn't sold cars in the U.S. in two decades.
It has not yet been determined whether Chrysler will sell those cars as Fiats, or rebadge them as Chrysler, Jeep or Dodge brand cars. Also in question is whether Fiat will bring its Alfa Romeo brand of luxury vehicles to the U.S.
It also must work to integrate a new finance company, GMAC, into its distribution channel because its former finance arm, Chrysler Financial, will no longer provide loans to dealers or customers.
To help with the transition, Marchionne will keep Jim Press, former Chrysler vice chairman and president. His new title is deputy chief executive and special advisor. But Chrysler's previous chief executive, Bob Nardelli, and its other vice chairman, Tom LaSorda, depart.
Press, among other things, was responsible for the automaker's sales and service operations. As such, he played a critical role in Chrysler's decision to eliminate 789 of its 3,200 dealers, a step that was made final on Tuesday by the bankruptcy judge overseeing the automaker's case.
News of the deal's completion elicited quick praise from some lawmakers known for their support of the auto industry.
"Chrysler is a company that can succeed and compete with anyone," said Rep. John Dingell (D-Mich.). "I am glad company executives can now focus on making cars and the people who work the assembly line can get back to building those great cars."
Showing posts with label Bankruptcy. Show all posts
Showing posts with label Bankruptcy. Show all posts
Wednesday, June 10, 2009
Tuesday, June 9, 2009
GM New Chairman: Former AT&T Chief (Edward E. Whitacre Jr.)
General Motors named Edward E. Whitacre Jr., the former chief executive of AT&T, on Tuesday as the chairman of a recast board to oversee the “New G.M.” that will emerge from bankruptcy.
G.M., which filed for Chapter 11 bankruptcy protection on June 1, said Mr. Whitacre would be joined on the board by Kent Kresa, its current interim chairman, and G.M.’s chief executive, Fritz Henderson.
Four other G.M. directors will keep their seats, but six — including the long-time lead director, George Fisher — will retire before G.M. is reorganized in bankruptcy court.
The overhaul of the G.M. board was a condition set by the Treasury Department for continued financial assistance to the insolvent automaker.
G.M. has received $19.4 billion in federal loans since December, and will get another $30.1 billion in government aid.
The sweeping changes in the board room follow President Obama’s decision to ask Rick Wagoner, G.M.’s previous chairman and chief executive, to resign in March.
Mr. Whitacre’s appointment reflects the need seen by the president’s top auto advisers to put an outsider at the top of G.M., which will be 60 percent owned by the federal government when it comes out of bankruptcy.
“I am honored to be able to serve G.M. at this critical juncture and take part in its reinvention,” said Mr. Whitacre, who was chairman and chief executive of AT&T, and predecessor companies, from 1990 to 2007.
Several other candidates for four other board seats are still being considered by Steven Rattner, one of the leaders of Mr. Obama’s auto task force.
Upon Mr. Wagoner’s resignation on March 27, Mr. Kresa was tapped by the government to act as interim chairman.
He said Tuesday that the appointment of Mr. Whitacre was “a very auspicious beginning” for the company.
“We look forward to working with him to complete the reinvention of G.M. and maximize the enormous potential of this new enterprise,” Mr. Kresa said.
Besides Mr. Kresa and Mr. Henderson, the directors who will remain on the board are Philip A. Laskawy, Kathryn V. Marinello, Erroll B. Davis Jr. and E. Neville Isdell.
G.M., which filed for Chapter 11 bankruptcy protection on June 1, said Mr. Whitacre would be joined on the board by Kent Kresa, its current interim chairman, and G.M.’s chief executive, Fritz Henderson.
Four other G.M. directors will keep their seats, but six — including the long-time lead director, George Fisher — will retire before G.M. is reorganized in bankruptcy court.
The overhaul of the G.M. board was a condition set by the Treasury Department for continued financial assistance to the insolvent automaker.
G.M. has received $19.4 billion in federal loans since December, and will get another $30.1 billion in government aid.
The sweeping changes in the board room follow President Obama’s decision to ask Rick Wagoner, G.M.’s previous chairman and chief executive, to resign in March.
Mr. Whitacre’s appointment reflects the need seen by the president’s top auto advisers to put an outsider at the top of G.M., which will be 60 percent owned by the federal government when it comes out of bankruptcy.
“I am honored to be able to serve G.M. at this critical juncture and take part in its reinvention,” said Mr. Whitacre, who was chairman and chief executive of AT&T, and predecessor companies, from 1990 to 2007.
Several other candidates for four other board seats are still being considered by Steven Rattner, one of the leaders of Mr. Obama’s auto task force.
Upon Mr. Wagoner’s resignation on March 27, Mr. Kresa was tapped by the government to act as interim chairman.
He said Tuesday that the appointment of Mr. Whitacre was “a very auspicious beginning” for the company.
“We look forward to working with him to complete the reinvention of G.M. and maximize the enormous potential of this new enterprise,” Mr. Kresa said.
Besides Mr. Kresa and Mr. Henderson, the directors who will remain on the board are Philip A. Laskawy, Kathryn V. Marinello, Erroll B. Davis Jr. and E. Neville Isdell.
Monday, June 8, 2009
Fiat and Chrysler Deal Confirmed Despite Court Delay
Italian automaker Fiat said Tuesday it will not turn its back on a deal to acquire a controlling stake in Chrysler despite a U.S. Supreme Court stay on the sale.
Under terms of the agreement, Fiat has the option to abandon the deal if it is not completed by June 15.
"Fiat won't walk away from Chrysler," Fiat spokesman Gualberto Ranieri said.
The U.S. Supreme Court decision on Monday to hear a challenge by three Indiana pension and construction funds could ultimately scuttle the sale. But the delay could also only be temporary. Justice Ruth Ginsburg could decide on her own to end the stay or ask the full court to decide.
If Fiat were to walk away, Chrysler would have little option but to liquidate.
The trio of funds, which hold a small part of Chrysler's debt, have been fighting the sale, claiming that it unfairly favors Chrysler's unsecured stakeholders ahead of secured debtholders like themselves.
Chrysler claims the agreement with Fiat is the best deal it can get for its assets and is critical to the company's plan to emerge from bankruptcy protection.
Fiat has offered its small car and environmentally friendly engine technology, as well as management expertise, in exchange for an initial 20 percent stake in Chrysler, which will grow to 35 percent in 5 percent increments. Fiat CEO Sergio Marchionne, who was in Detroit on Tuesday laying the groundwork for the transition, will also become Chrysler's chief executive when the deal is complete.
Marchionne, who is responsible for Fiat's turnaround from a loss-making company with a string of failed models, also is expected to bring fundamental changes to the Chrysler management structure — doing away with hierarchy and making a quicker decision-making process.
Fiat plans to launch its hugely popular Fiat 500 (Cinquecento in Italian) in the United States, as well as the Alfa Romeo brand.
Marchionne also remains interested in Germany's Opel, part of General Motors Corp.'s European operations, in case negotiations fail with the leading bidder, Canadian auto parts supplier Magna International Inc.
Under terms of the agreement, Fiat has the option to abandon the deal if it is not completed by June 15.
"Fiat won't walk away from Chrysler," Fiat spokesman Gualberto Ranieri said.
The U.S. Supreme Court decision on Monday to hear a challenge by three Indiana pension and construction funds could ultimately scuttle the sale. But the delay could also only be temporary. Justice Ruth Ginsburg could decide on her own to end the stay or ask the full court to decide.
If Fiat were to walk away, Chrysler would have little option but to liquidate.
The trio of funds, which hold a small part of Chrysler's debt, have been fighting the sale, claiming that it unfairly favors Chrysler's unsecured stakeholders ahead of secured debtholders like themselves.
Chrysler claims the agreement with Fiat is the best deal it can get for its assets and is critical to the company's plan to emerge from bankruptcy protection.
Fiat has offered its small car and environmentally friendly engine technology, as well as management expertise, in exchange for an initial 20 percent stake in Chrysler, which will grow to 35 percent in 5 percent increments. Fiat CEO Sergio Marchionne, who was in Detroit on Tuesday laying the groundwork for the transition, will also become Chrysler's chief executive when the deal is complete.
Marchionne, who is responsible for Fiat's turnaround from a loss-making company with a string of failed models, also is expected to bring fundamental changes to the Chrysler management structure — doing away with hierarchy and making a quicker decision-making process.
Fiat plans to launch its hugely popular Fiat 500 (Cinquecento in Italian) in the United States, as well as the Alfa Romeo brand.
Marchionne also remains interested in Germany's Opel, part of General Motors Corp.'s European operations, in case negotiations fail with the leading bidder, Canadian auto parts supplier Magna International Inc.
Thursday, June 4, 2009
Pretty GM Incentives, Ready to Buy New GM Cars
If you are not afraid of the buying a vehicle from the GM then you might be able to snag some pretty good deals. GM head honcho Fritz Henderson stated at a press conference recently, that the company is still selling vehicles although it is in the throes of a reorganization.
"We look forward to the chance to win your business," Henderson said, speaking directly to customers. "The GM that you know, and the GM that let many of you down is history."
If you’re a savvy shopper and have got the gift of gab, you might be able to snatch up some pretty descent buys.
If you like ‘em big, there are ’09 humvees, H2 and H3 with rebates that range from $2,000 to $5,000.
Chevy SUV’s like the Trailblazer and Silverado are $3,000 less than the asking price.
Like Caddies? Does a $4,500 incentive on an XLR and XLR-V tickle your fancy? Prefer an STS, CTS or Sclade (Escalade), check out the hot deals on them as well.
If you are not trying to keep up with the Joneses and are good with an ’08 model, then there are deals aplenty on these. Enticing deals like $8,500 cash allowance on a Sclade, the XLR and XLR-V.
The cash allowances for the H2 is $8,000 and for the H3, $7,000.
The Colorado will be $4,250 less and the Impala will have a $3,250 discount.
A Saab lover? They are practically being given away with cash allowances of $6,500 to $10,000.
Like ‘em small and sporty, you can put an ‘08 Vette in your garage for less than $2,000 off the asking price.
These deals depend on what state you live in and of course, there are stipulations, so…do your homework first.
Nothing lasts forever, so make sure you check out the expiration dates of these offers. If you’re game, you might want to act quickly!
Ready, set…dash!
"We look forward to the chance to win your business," Henderson said, speaking directly to customers. "The GM that you know, and the GM that let many of you down is history."
If you’re a savvy shopper and have got the gift of gab, you might be able to snatch up some pretty descent buys.
If you like ‘em big, there are ’09 humvees, H2 and H3 with rebates that range from $2,000 to $5,000.
Chevy SUV’s like the Trailblazer and Silverado are $3,000 less than the asking price.
Like Caddies? Does a $4,500 incentive on an XLR and XLR-V tickle your fancy? Prefer an STS, CTS or Sclade (Escalade), check out the hot deals on them as well.
If you are not trying to keep up with the Joneses and are good with an ’08 model, then there are deals aplenty on these. Enticing deals like $8,500 cash allowance on a Sclade, the XLR and XLR-V.
The cash allowances for the H2 is $8,000 and for the H3, $7,000.
The Colorado will be $4,250 less and the Impala will have a $3,250 discount.
A Saab lover? They are practically being given away with cash allowances of $6,500 to $10,000.
Like ‘em small and sporty, you can put an ‘08 Vette in your garage for less than $2,000 off the asking price.
These deals depend on what state you live in and of course, there are stipulations, so…do your homework first.
Nothing lasts forever, so make sure you check out the expiration dates of these offers. If you’re game, you might want to act quickly!
Ready, set…dash!
Tuesday, June 2, 2009
U.S. Auto Sales May 2009 Predicted Upside as Chrysler Bankruptcy
A late month surge in sales from Chrysler dealerships that are losing their franchises as part of the automaker's bankruptcy may have driven U.S. auto sales in May to levels above those seen in recent months.
But automakers are expected to report steep sales declines from a year earlier with the U.S. economy in a tailspin, the industry reeling from Chrysler's bankruptcy on April 30 an General Motors Corp's (GM.N) bankruptcy filing on Monday.
"We will probably see a little upside, a little pop," said Mirko Mikelic, an analyst at Fifth Third Bank. "But other than that sales will probably be much the same as in April."
"More people will probably have been looking at cars," he added. "But consumers are not ready to open their wallets."
Deutsche Bank said it expected light vehicle sales to be down 36.5 percent year-over-year in a survey taken just before the Memorial Day weekend, which is seen as the start of the busy U.S. summer driving and car buying seasons.
The six largest automakers all are expected to post sales declines from a year earlier, led by a 54 percent drop at Chrysler, according to industry tracking firm Edmunds.
DEATH RATTLE
A late May sales surge at dealerships being eliminated may have pushed Chrysler's sales higher and the industry as well, Ford's chief sales analyst George Pipas said on Friday. That would not indicate a sustained recovery in sales, he said.
"I think we won't have a true picture for some time as to what is happening with industry sales," Pipas said.
Edmunds expects GM sales to drop 36.9 percent, Ford Motor Co (F.N) 28.5 percent, Toyota Motor Corp (7203.T) 40.6 percent, Honda Motor Co Ltd (7267.T) 39.3 percent and Nissan Motor Co Ltd (7201.T) 35.1 percent.
A Reuters poll of analysts found a median expectation for U.S. auto sales to reach 9.4 million units on a seasonally adjusted annualized basis in May, a slight increase from April, but far below the 14.3 million unit rate a year earlier.
The seasonally adjusted annual rate is a key measure used by economists to gauge the health of the U.S. economy. Auto sales are also one of the earlier economic indicators.
At the height of the recent credit-fueled boom, U.S. auto sales reached 17 million units in 2005.
INCENTIVES AND DEALS
JP Morgan analyst Himanshu Patel said on Wednesday the result could depend on incentives offered by Chrysler dealers in the last selling weekend of the month with the seasonally adjusted annual rate possibly reaching 10 million.
"It appears Chrysler sales have improved notably versus early-month trends, as terminated Chrysler dealers try to liquidate inventory ahead of their June 9 franchise termination deadline," Patel said in a note to clients.
Ford's Pipas also said industry sales could hit the 10 million unit annualized mark, but pointed to the Chrysler dealers sales as creating distortions in the market that could continue with Chrysler and GM in bankruptcy.
GM filed for Chapter 11 bankruptcy protection on Monday.
Chrysler plans to terminate 789 U.S. dealerships from its network by June 9, or about 25 percent of the total. It is not providing financial assistance to the dealers.
Chrysler Chief Executive Bob Nardelli told the bankruptcy court on Thursday that dealerships Chrysler plans to terminate June 9 had sold 4,000 vehicles at retail and transferred 15,000 to other dealerships through Wednesday.
"We are seeing a clearing out of inventories and in some cases people looking to buy Chrysler vehicles, but only at steep discounts," independent industry analyst Erich Merkle said.
GM as well plans to cut 1,600 dealers between now and October 2010 as it hives off brands that are not part of the new GM and lets long-term agreements with about 1,100 dealerships expire.
Chrysler is seeking bankruptcy court approval for the sale of most of its assets to a new company led by Italy's Fiat SpA (FIA.MI) which could come as soon as Friday.
"They still have to try to find some way to entice consumers into showrooms without any product except for a couple of models that are arriving maybe next year and nothing that is arriving from Fiat for maybe 18 months," IHS Global Insight analyst Aaron Bragman said of Chrysler.
But automakers are expected to report steep sales declines from a year earlier with the U.S. economy in a tailspin, the industry reeling from Chrysler's bankruptcy on April 30 an General Motors Corp's (GM.N) bankruptcy filing on Monday.
"We will probably see a little upside, a little pop," said Mirko Mikelic, an analyst at Fifth Third Bank. "But other than that sales will probably be much the same as in April."
"More people will probably have been looking at cars," he added. "But consumers are not ready to open their wallets."
Deutsche Bank said it expected light vehicle sales to be down 36.5 percent year-over-year in a survey taken just before the Memorial Day weekend, which is seen as the start of the busy U.S. summer driving and car buying seasons.
The six largest automakers all are expected to post sales declines from a year earlier, led by a 54 percent drop at Chrysler, according to industry tracking firm Edmunds.
DEATH RATTLE
A late May sales surge at dealerships being eliminated may have pushed Chrysler's sales higher and the industry as well, Ford's chief sales analyst George Pipas said on Friday. That would not indicate a sustained recovery in sales, he said.
"I think we won't have a true picture for some time as to what is happening with industry sales," Pipas said.
Edmunds expects GM sales to drop 36.9 percent, Ford Motor Co (F.N) 28.5 percent, Toyota Motor Corp (7203.T) 40.6 percent, Honda Motor Co Ltd (7267.T) 39.3 percent and Nissan Motor Co Ltd (7201.T) 35.1 percent.
A Reuters poll of analysts found a median expectation for U.S. auto sales to reach 9.4 million units on a seasonally adjusted annualized basis in May, a slight increase from April, but far below the 14.3 million unit rate a year earlier.
The seasonally adjusted annual rate is a key measure used by economists to gauge the health of the U.S. economy. Auto sales are also one of the earlier economic indicators.
At the height of the recent credit-fueled boom, U.S. auto sales reached 17 million units in 2005.
INCENTIVES AND DEALS
JP Morgan analyst Himanshu Patel said on Wednesday the result could depend on incentives offered by Chrysler dealers in the last selling weekend of the month with the seasonally adjusted annual rate possibly reaching 10 million.
"It appears Chrysler sales have improved notably versus early-month trends, as terminated Chrysler dealers try to liquidate inventory ahead of their June 9 franchise termination deadline," Patel said in a note to clients.
Ford's Pipas also said industry sales could hit the 10 million unit annualized mark, but pointed to the Chrysler dealers sales as creating distortions in the market that could continue with Chrysler and GM in bankruptcy.
GM filed for Chapter 11 bankruptcy protection on Monday.
Chrysler plans to terminate 789 U.S. dealerships from its network by June 9, or about 25 percent of the total. It is not providing financial assistance to the dealers.
Chrysler Chief Executive Bob Nardelli told the bankruptcy court on Thursday that dealerships Chrysler plans to terminate June 9 had sold 4,000 vehicles at retail and transferred 15,000 to other dealerships through Wednesday.
"We are seeing a clearing out of inventories and in some cases people looking to buy Chrysler vehicles, but only at steep discounts," independent industry analyst Erich Merkle said.
GM as well plans to cut 1,600 dealers between now and October 2010 as it hives off brands that are not part of the new GM and lets long-term agreements with about 1,100 dealerships expire.
Chrysler is seeking bankruptcy court approval for the sale of most of its assets to a new company led by Italy's Fiat SpA (FIA.MI) which could come as soon as Friday.
"They still have to try to find some way to entice consumers into showrooms without any product except for a couple of models that are arriving maybe next year and nothing that is arriving from Fiat for maybe 18 months," IHS Global Insight analyst Aaron Bragman said of Chrysler.
GM Agree to Sell Hummer, Who is Buyer?
General Motors Corp. said Tuesday that it has tentatively agreed to sell its Hummer brand, a day after the U.S. automaker filed for bankruptcy protection with hopes that it will transform its most profitable assets into a new company within just 30 days.
The Detroit-based company did not name the proposed buyer or the price, but said the sale will likely save more than 3,000 U.S. jobs in manufacturing, engineering and at various Hummer dealerships.
"We're not today in a position to be able to identify a buyer. it was part of the agreement," GM Chief Executive Fritz Henderson told CBS's "The Early Show." ''We believe the buyer is quite capable of closing."
Critics had seized on the rugged but fuel-inefficient Hummer as a symbol of excess as GM's financial troubles grew and gas prices rose. Sales at Hummer, which is known for hulking sport utility vehicles like the H3, have been in a steep slide since gasoline prices rose to record heights last summer. For the first four months of this year, Hummer sales are down 67 percent.
GM and other automakers will report May auto sales later Tuesday.
A sale of the Hummer brand had been expected. Chief Executive Fritz Henderson had said in April that the automaker was expecting final bids from three potential buyers within the month.
Other terms of the transaction, which is currently tied to a memorandum of understanding, were not disclosed.
The unnamed buyer is planning to "aggressively" finance Hummer's future product programs, according to GM.
"I'm confident that Hummer will thrive globally under its new ownership. And for GM, this sale continues to accelerate the reinvention of GM into a leaner, more focused and more cost-competitive automaker," Troy Clarke, president of GM North America, said in a statement.
GM is also trying to sell its Saab and Saturn brands and will phase out its Pontiac brand as it concentrates on its Chevrolet, Cadillac, Buick and GMC nameplates.
In advance of Monday's bankruptcy filing by GM, the automaker had agreed on a deal to sell a majority interest in its Adam Opel GmbH unit in Europe.
Under that plan, Canada's Magna International Inc. would get a 20 percent stake in Opel and state-controlled Russian lender Sberbank would take a 35 percent stake. GM will retain a 35 percent holding, while the remaining 10 percent will go to Opel employees.
The proposed deal for Hummer will allow it to continue to contract vehicle manufacturing and business services from GM during the transition process.
The Hummer sale is expected to close by the third quarter's end.
GM sought court protection from its creditors on Monday under Chapter 11 of the U.S. bankruptcy code. The company said it hopes to reshape the company within a month and emerge from reorganization in 60 to 90 days as a profitable entity with fewer employees, factories and dealers.
The Detroit-based company did not name the proposed buyer or the price, but said the sale will likely save more than 3,000 U.S. jobs in manufacturing, engineering and at various Hummer dealerships.
"We're not today in a position to be able to identify a buyer. it was part of the agreement," GM Chief Executive Fritz Henderson told CBS's "The Early Show." ''We believe the buyer is quite capable of closing."
Critics had seized on the rugged but fuel-inefficient Hummer as a symbol of excess as GM's financial troubles grew and gas prices rose. Sales at Hummer, which is known for hulking sport utility vehicles like the H3, have been in a steep slide since gasoline prices rose to record heights last summer. For the first four months of this year, Hummer sales are down 67 percent.
GM and other automakers will report May auto sales later Tuesday.
A sale of the Hummer brand had been expected. Chief Executive Fritz Henderson had said in April that the automaker was expecting final bids from three potential buyers within the month.
Other terms of the transaction, which is currently tied to a memorandum of understanding, were not disclosed.
The unnamed buyer is planning to "aggressively" finance Hummer's future product programs, according to GM.
"I'm confident that Hummer will thrive globally under its new ownership. And for GM, this sale continues to accelerate the reinvention of GM into a leaner, more focused and more cost-competitive automaker," Troy Clarke, president of GM North America, said in a statement.
GM is also trying to sell its Saab and Saturn brands and will phase out its Pontiac brand as it concentrates on its Chevrolet, Cadillac, Buick and GMC nameplates.
In advance of Monday's bankruptcy filing by GM, the automaker had agreed on a deal to sell a majority interest in its Adam Opel GmbH unit in Europe.
Under that plan, Canada's Magna International Inc. would get a 20 percent stake in Opel and state-controlled Russian lender Sberbank would take a 35 percent stake. GM will retain a 35 percent holding, while the remaining 10 percent will go to Opel employees.
The proposed deal for Hummer will allow it to continue to contract vehicle manufacturing and business services from GM during the transition process.
The Hummer sale is expected to close by the third quarter's end.
GM sought court protection from its creditors on Monday under Chapter 11 of the U.S. bankruptcy code. The company said it hopes to reshape the company within a month and emerge from reorganization in 60 to 90 days as a profitable entity with fewer employees, factories and dealers.
Monday, June 1, 2009
Good Time to Buy Dodge Vehicles as Chrysler Dealers Cut
The Hampton auto dealer, who owns one of the Chrysler franchises that the bankrupt automaker plans to cut, had just 12 days left as of Thursday to sell about 60 new Dodge vehicles on his lot. With June 9 set as his last day as a Chrysler dealer, Tysinger has discounted his new cars and trucks well below the price he would otherwise seek, just to move the merchandise.
"It's good inventory, but it's Cinderella at midnight," Tysinger said last week. "And if you wait until the clock strikes, that carriage has turned into a pumpkin."
The day after their franchises expire, Tysinger Motor and other dealerships must sell those new, shiny, barely driven vehicles as used. They won't be able to offer the rebates that they can as Chrysler dealers, which means they'd have to discount each car or truck by $3,000 to $6,000 just to compete with remaining franchise owners.
They'd lose money on each sale.
It's the same situation for nearly 800 Chrysler dealers nationwide after they learned May 14 that they will lose their franchises. Some General Motors dealers could be in the same position soon. GM could use the bankruptcy it is expected to file today to expedite cuts planned for its dealer base in 2010.
Chrysler LLC submitted its list of 800 dealers to U.S. Bankruptcy Court in New York for approval. The approval has yet to come, and some dealers - including Tysinger and Edenton Motors in North Carolina - are making cases in bankruptcy court to fight for their franchises. Nobody knows when the judge will decide or whether the judge will change the date that the relationship with Chrysler ends.
The dealers are planning for the worst. The worst for them has led to some of the best deals they say they've ever offered customers.
"We're in a disposal mode," said David Webster, co-owner of Grafton Dodge on Route 17 near Yorktown. He has told his staff not to worry about the dealer 's margin on a sale. "There's a very lucrative pay plan for them - not on profit but on sheer numbers," he said. "It makes it a great time to buy."
Grafton Dodge had sold about 25 of 60 vehicles with 12 days to go. Tysinger started the process - when Chrysler announced its cuts - with about 110 vehicles and had sold about 50.
Edenton Motors was down to four of 12 or 13 vehicles it had to unload, said co-owner Stewart Deacon, who cut the manufacturer's suggested retail prices by 30 to 40 percent.
"I'm selling it at a loss," Deacon acknowledged. "I'm losing money on the sale. But I'd rather sell to a retail customer than to another dealer."
Chrysler has told its terminated dealers that it will help them match their remaining inventory with franchisees who will buy it. Many showrooms, however, already have more vehicles than they can sell and have no incentive to buy product for more than their usual wholesale cost, the dealers said.
Also, remaining Chrysler dealers won't necessarily want cars their former colleagues had trouble selling, said George Hoffer, a Virginia Commonwealth University economics professor who specializes in the auto industry. "The best vehicles will have gone already."
Even as Webster pushed to sell the cars on his lot, he was expecting delivery of four Dodges he had ordered. He's on the hook to sell vehicles - in less than two weeks - that he doesn't have, unless he can persuade Chrysler to keep them and give him his money back.
"Haven't gotten that answer yet," he said. "Still waiting."
Chrysler's rejected dealers, in many cases, will get stuck with parts and equipment they cannot use. Auto manufacturers typically require franchisees to buy the latest equipment to work on their vehicles. Dealer s can cover the cost with the amount of work they'll do on cars under warranty, for which the manufacturer will pay them. But retailers that lose their franchises cannot do warranty repairs after the cut-off date.
In January, Tysinger said, he spent about $15,000 on diagnostic tools for Dodge vehicles, as Chrysler directed him. With almost 800 dealers trying to unload such equipment to other retailers that probably already own it, Tysinger doesn't see selling the tools as an option.
"Basically, we're going to keep them and write off $15,000," he said.
Deacon, too, faces the prospect of wasted money on obsolete tools and parts. But he has managed to collect enough in sales rebates, incentives and warranty payments from Chrysler in the past few weeks to reduce his total potential loss from about $500,000 to about $100,000, he said. "Now, it's going to be negligible."
The dealers said one of their biggest challenges is making sure customers know they will stay in business.
Grafton Dodge plans to convert its operation to used cars. Edenton Motors still has a General Motors franchise. Tysinger sells Mercedes-Benz and Hyundai. "We are absolutely not closing," Webster said.
"We are going to be here."
They believe that many of their customers will stay with them - no matter what they sell - rather than switch to another Chrysler dealer. The automaker has said it hopes reducing its dealer base will bolster remaining showrooms, assuming that customers would switch to a nearby dealer.
Hoffer, however, thinks Chrysler shouldn't count on keeping those customers. Many will choose a Ford, Toyota or a used car rather than drive to another Chrysler dealership, which could be much farther away.
"They will lose more than they think when they lose these dealers," Hoffer said of Chrysler. "Every customer who bought at these dealerships is in play."
Rural dealers, in particular, have built personal relationships with their customers and benefit geographically as the only dealer in town, in many cases.
"You know the owner," Hoffer said. "There's no loyalty to the brand at all."
"It's good inventory, but it's Cinderella at midnight," Tysinger said last week. "And if you wait until the clock strikes, that carriage has turned into a pumpkin."
The day after their franchises expire, Tysinger Motor and other dealerships must sell those new, shiny, barely driven vehicles as used. They won't be able to offer the rebates that they can as Chrysler dealers, which means they'd have to discount each car or truck by $3,000 to $6,000 just to compete with remaining franchise owners.
They'd lose money on each sale.
It's the same situation for nearly 800 Chrysler dealers nationwide after they learned May 14 that they will lose their franchises. Some General Motors dealers could be in the same position soon. GM could use the bankruptcy it is expected to file today to expedite cuts planned for its dealer base in 2010.
Chrysler LLC submitted its list of 800 dealers to U.S. Bankruptcy Court in New York for approval. The approval has yet to come, and some dealers - including Tysinger and Edenton Motors in North Carolina - are making cases in bankruptcy court to fight for their franchises. Nobody knows when the judge will decide or whether the judge will change the date that the relationship with Chrysler ends.
The dealers are planning for the worst. The worst for them has led to some of the best deals they say they've ever offered customers.
"We're in a disposal mode," said David Webster, co-owner of Grafton Dodge on Route 17 near Yorktown. He has told his staff not to worry about the dealer 's margin on a sale. "There's a very lucrative pay plan for them - not on profit but on sheer numbers," he said. "It makes it a great time to buy."
Grafton Dodge had sold about 25 of 60 vehicles with 12 days to go. Tysinger started the process - when Chrysler announced its cuts - with about 110 vehicles and had sold about 50.
Edenton Motors was down to four of 12 or 13 vehicles it had to unload, said co-owner Stewart Deacon, who cut the manufacturer's suggested retail prices by 30 to 40 percent.
"I'm selling it at a loss," Deacon acknowledged. "I'm losing money on the sale. But I'd rather sell to a retail customer than to another dealer."
Chrysler has told its terminated dealers that it will help them match their remaining inventory with franchisees who will buy it. Many showrooms, however, already have more vehicles than they can sell and have no incentive to buy product for more than their usual wholesale cost, the dealers said.
Also, remaining Chrysler dealers won't necessarily want cars their former colleagues had trouble selling, said George Hoffer, a Virginia Commonwealth University economics professor who specializes in the auto industry. "The best vehicles will have gone already."
Even as Webster pushed to sell the cars on his lot, he was expecting delivery of four Dodges he had ordered. He's on the hook to sell vehicles - in less than two weeks - that he doesn't have, unless he can persuade Chrysler to keep them and give him his money back.
"Haven't gotten that answer yet," he said. "Still waiting."
Chrysler's rejected dealers, in many cases, will get stuck with parts and equipment they cannot use. Auto manufacturers typically require franchisees to buy the latest equipment to work on their vehicles. Dealer s can cover the cost with the amount of work they'll do on cars under warranty, for which the manufacturer will pay them. But retailers that lose their franchises cannot do warranty repairs after the cut-off date.
In January, Tysinger said, he spent about $15,000 on diagnostic tools for Dodge vehicles, as Chrysler directed him. With almost 800 dealers trying to unload such equipment to other retailers that probably already own it, Tysinger doesn't see selling the tools as an option.
"Basically, we're going to keep them and write off $15,000," he said.
Deacon, too, faces the prospect of wasted money on obsolete tools and parts. But he has managed to collect enough in sales rebates, incentives and warranty payments from Chrysler in the past few weeks to reduce his total potential loss from about $500,000 to about $100,000, he said. "Now, it's going to be negligible."
The dealers said one of their biggest challenges is making sure customers know they will stay in business.
Grafton Dodge plans to convert its operation to used cars. Edenton Motors still has a General Motors franchise. Tysinger sells Mercedes-Benz and Hyundai. "We are absolutely not closing," Webster said.
"We are going to be here."
They believe that many of their customers will stay with them - no matter what they sell - rather than switch to another Chrysler dealer. The automaker has said it hopes reducing its dealer base will bolster remaining showrooms, assuming that customers would switch to a nearby dealer.
Hoffer, however, thinks Chrysler shouldn't count on keeping those customers. Many will choose a Ford, Toyota or a used car rather than drive to another Chrysler dealership, which could be much farther away.
"They will lose more than they think when they lose these dealers," Hoffer said of Chrysler. "Every customer who bought at these dealerships is in play."
Rural dealers, in particular, have built personal relationships with their customers and benefit geographically as the only dealer in town, in many cases.
"You know the owner," Hoffer said. "There's no loyalty to the brand at all."
Sunday, May 31, 2009
GM Bankruptcy, What Does it Mean?
General Motor’s decision to file for Chapter 11 bankruptcy has created a lot of uncertainty for both car buyers and owners of GM vehicles.
While it’s too early to know how all of the variables will play out, both the company and the federal government are hoping for a relatively short restructuring period.
Ideally, GM will emerge from this as a leaner, more streamlined automaker—with fewer brands, dealerships, and models—that is better positioned to compete in today’s automotive environment.
In the meantime, the restructuring processes could be fairly transparent for most car buyers and owners.
Exceptions include those who have a local dealership close its doors or discontinue carrying a certain brand. And for car shoppers in general, it could be a great time to buy.
1. Will I be able to get parts and service for my GM car?
GM has said that it will continue to support their authorized dealerships with parts during this restructuring period, so that the dealers can continue to service your vehicle. Of course, common third-party replacement parts are also widely available through auto-parts stores.
Keep in mind that you don't have to take your car to a dealership for servicing, even if it’s under warranty. A good independent shop, especially one that specializes in your car’s brand, should be able to handle routine maintenance and many repairs. Moreover, independent repair shops are often less expensive than dealerships and, according to our Annual Auto Survey, generally provide a higher level of satisfaction. You will need to go to a dealership, however, for warranty and recall work.
2. Will GM still back my warranty?
GM has said that it will continue to support its vehicles’ warranties during this restructuring period.
In addition, the Treasury Department’s Warranty Commitment Program says that the federal government would back warranties for any GM vehicle bought during the restructuring period, should the automaker go out of business. The government would contract with a third-party auto-service provider to provide warranty repairs. Such a program might not run as smoothly as an automaker program, but it wouldn’t kick in unless the automaker is liquidated.
3. Will this affect the resale value of my GM car?
With the uncertainty surrounding GM, it’s likely that its cars will drop in value during this restructuring period, especially for brands that are being phased out or sold. But if the company re-establishes itself as a strong, stable automaker in future months, ongoing models could see a rebound in value.
The resale value for brands that are discontinued is likely to drop dramatically, as happened when GM phased out Oldsmobile in 2004 and Chrysler dropped Plymouth in 2001. This would have the most effect on owners who keep their vehicle for only a few years, say five or less. But if you plan to keep the car for a long time, depreciation is less of a factor.
To help compensate for this drop in value, GM is currently offering a sales-incentive program that gives you extra money if you trade in a current GM car for another. It also covers selling your car privately, but you still need to buy another GM vehicle within a certain period of time. For details, go to www.gm.com/vehicles/currentoffers/.
While it’s too early to know how all of the variables will play out, both the company and the federal government are hoping for a relatively short restructuring period.
Ideally, GM will emerge from this as a leaner, more streamlined automaker—with fewer brands, dealerships, and models—that is better positioned to compete in today’s automotive environment.
In the meantime, the restructuring processes could be fairly transparent for most car buyers and owners.
Exceptions include those who have a local dealership close its doors or discontinue carrying a certain brand. And for car shoppers in general, it could be a great time to buy.
1. Will I be able to get parts and service for my GM car?
GM has said that it will continue to support their authorized dealerships with parts during this restructuring period, so that the dealers can continue to service your vehicle. Of course, common third-party replacement parts are also widely available through auto-parts stores.
Keep in mind that you don't have to take your car to a dealership for servicing, even if it’s under warranty. A good independent shop, especially one that specializes in your car’s brand, should be able to handle routine maintenance and many repairs. Moreover, independent repair shops are often less expensive than dealerships and, according to our Annual Auto Survey, generally provide a higher level of satisfaction. You will need to go to a dealership, however, for warranty and recall work.
2. Will GM still back my warranty?
GM has said that it will continue to support its vehicles’ warranties during this restructuring period.
In addition, the Treasury Department’s Warranty Commitment Program says that the federal government would back warranties for any GM vehicle bought during the restructuring period, should the automaker go out of business. The government would contract with a third-party auto-service provider to provide warranty repairs. Such a program might not run as smoothly as an automaker program, but it wouldn’t kick in unless the automaker is liquidated.
3. Will this affect the resale value of my GM car?
With the uncertainty surrounding GM, it’s likely that its cars will drop in value during this restructuring period, especially for brands that are being phased out or sold. But if the company re-establishes itself as a strong, stable automaker in future months, ongoing models could see a rebound in value.
The resale value for brands that are discontinued is likely to drop dramatically, as happened when GM phased out Oldsmobile in 2004 and Chrysler dropped Plymouth in 2001. This would have the most effect on owners who keep their vehicle for only a few years, say five or less. But if you plan to keep the car for a long time, depreciation is less of a factor.
To help compensate for this drop in value, GM is currently offering a sales-incentive program that gives you extra money if you trade in a current GM car for another. It also covers selling your car privately, but you still need to buy another GM vehicle within a certain period of time. For details, go to www.gm.com/vehicles/currentoffers/.
After GM Bankruptcy, Everything Go Where?
The General Motors Corp. bankruptcy filing expected Monday follows weeks of maneuvering and preparation.
The government has said it wants GM’s trip through bankruptcy to be quick, and various stakeholders will have to accept sweeping changes.
Still, the future of the auto giant — and its significant presence in Western New York — is shrouded in questions.
The answers matter to everyone — active and retired workers, dealers and suppliers, and, most importantly, to car buyers.
GM has an engine plant with more than 1,000 jobs in the Town of Tonawanda. Suppliers with a local presence, including Delphi Corp., American Axle & Manufacturing, and other smaller companies ship products to GM. In the eight counties of Western New York, 48 dealerships sell new GM vehicles.
And retirees rely on the automaker for health benefits and pensions.
Here is a look at what might unfold:
1. Employees
Members of the United Auto Workers last week approved revisions to their 2007 labor contract with GM, with 74 percent voting in favor.
If GM went bankrupt, the union felt, it was better to have an amended contract in place.
A lot of local jobs are at stake. The Tonawanda plant has about 1,140 employees, including about 1,010 hourly workers.
About 360 of the hourly workers are on layoff.
The amended contract calls for suspending workers’ cost-of-living adjustments and suspending performance bonuses planned for this year and 2010.
It also eliminates the chance of a strike against GM until 2015 and shortens workers’ break times. A new round of buyout and early retirement offers was included.
Garry Graber, a partner in the Hodgson Russ law firm, doubts the contract will be altered in bankruptcy court.
“A judge won’t change the labor contract unless the company asks them to,” he said.
And he doesn’t expect GM to ask for changes, since the contract was just agreed to.
2. Retirees
The revised contract calls for reducing retirees’ health benefits in areas such as dental and vision programs.
The reduced benefits could lead to an “induced effect” on retirees, said George Palumbo, an economist at Canisius College. If they have to spend more on health care costs, they might cut back their spending in other areas, affecting the local economy, he said.
Retirees will have a major interest in the future version of GM: The union’s retiree health care trust will have a 17.5 percent stake in the company.
3. Plants
GM is downsizing its U. S. manufacturing and plans to announce Monday the closing of 14 plants by the end of 2010 to reduce its capacity and costs.
The Tonawanda plant probably will not be targeted, according to Art Wheaton, director of labor studies at Cornell University’s School of Industrial and Labor Relations in Buffalo.
“They can build more than one type of engine,” he said. “They’re not a one-trick wonder.”
Paul Lacy, who analyzes powertrain operations for IHS Global Insight, was less sure.
The Tonawanda plant is “certainly more vulnerable than some of the others,” he said, citing GM’s decision earlier this year to delay indefinitely a diesel engine line that had been announced for the site.
“Without the previously planned 4.5 liter diesel, the plant seems to be without purpose,” he said.
The plant closings will be costly to their home communities, eliminating about 21,000 jobs.
4. Suppliers
Even before bankruptcy talk began to swirl around GM and Chrysler LLC, suppliers to the auto industry were financially strained. The sharp downturn in auto sales has led to less production, so the automakers need fewer parts.
Both Chrysler and GM plan to idle many of their manufacturing operations for several weeks this summer to reduce their vehicle inventories. Those cutbacks will be felt through the chain, as suppliers cope with reduced business.
“The backward linkage [from automakers to suppliers] is extensive,” Palumbo said.
A GM bankruptcy filing could create more pain for suppliers, depending on the payments they collect. Suppliers might not get paid, or may have to settle for pennies on the dollar in compensation, Wheaton said. “It depends on what deal they cut.”
The federal government’s $5 billion Supplier Support Program is designed to help “tier one” suppliers that directly serve GM and Chrysler stay out of bankruptcy. Some suppliers have called for expanding its eligibility.
Gibraltar Industries supplies both GM and Chrysler, and both companies are current in their payments, said Ken Houseknecht, a Gibraltar spokesman.
While Gibraltar has good relationships with both automakers, the company over the years has diversified, lessening its reliance on the auto industry’s sales trends, he said.
The automakers have a “mutually dependent relationship” with many of their suppliers, Graber said.
“The manufacturer needs them as much as they need the manufacturer,” he said.
It is in GM’s interest to ensure its suppliers survive, he said, but there are limits to how much support it can provide to them.
The Center for Automotive Research believes the survival of the suppliers, like the dealers, requires a quick bankruptcy process.
“If GM and Chrysler are able to emerge from bankruptcy and resume operations within 60 to 90 days, the supplier sector — aided by the U. S. government — could remain viable,” its report said.
Delphi has been in bankruptcy for years, but there is a twist to its situation.
GM intends to reacquire five of Delphi’s operations, including its Lockport and Rochester plants, that were part of GM before the Delphi spinoff a decade ago.
5. Dealers
GM already informed more than 1,100 dealers that it will not renew their franchise agreements as of October 2010. On top of those reductions, it plans to cut ties with its Saturn, Hummer and Saab brands, and drop Pontiac altogether.
Saturn, Hummer and Saab all could survive under new owners. GM intends to concentrate on its Chevrolet, Cadillac, Buick and GMC brands.
Since auto dealers are protected by state franchise laws, GM dealers targeted for shutdown could go to court. But bankruptcy law trumps those franchise laws, giving a GM in Chapter 11 more sway in making decisions about its dealer network.
It’s “very possible” a bankrupt GM could seek to move up the termination date for the targeted dealers or add dealerships to the target list, said Michelle Krebs, senior industry editor with Edmunds.com.
When Chrysler LLC filed for bankruptcy in late April, it named 789 dealerships it planned to drop and set June 9 as the cutoff date. Chrysler LLC is not buying back dealers’ unsold vehicles and parts but has pledged to help arrange the transfer of those items to other dealerships.
Would consumers still buy cars and trucks from a bankrupt GM?
That was a top concern when the bankruptcy threat surfaced for Chrysler and GM. The Obama administration pledged the government would back the warranties of newly purchased GM and Chrysler vehicles to quell consumers’ fears.
It is difficult to pinpoint just how much Chrysler’s bankruptcy filing has hurt its sales, Krebs said, given the industry’s poor overall sales climate.
As for GM, “some customers don’t even know which brands belong to General Motors,” she said. But if bankruptcy becomes a reality, she added, GM dealers likely will field more questions from informed customers about warranties and service protections.
The Center for Automotive Research in Michigan studied Chrysler’s bankruptcy and GM’s potential filing. It distinguished between a process finished within 60 to 90 days, and a drawn-out, more damaging process.
“A prolonged hibernation by GM would put an unbearable financial strain on many suppliers and dealer franchises,” the report said.
6. The government
You own an auto company. What do you do now?
The Obama administration — and by default, taxpayers — must answer that question now that the federal government is about to take big stakes in two of the nation’s storied industrial companies and their joint financing arm. Based on the latest bankruptcy and bailout plans, the government will hold 72.5 percent of GM, 8 percent of Chrysler and 35 percent or more of GMAC Financial Services, the car loan business.
Ideas for what to do with those shares are colored by both politics and investment philosophy, and they’re sure to be debated.
Some economists and financiers believe President Obama should dump the stock almost immediately, to whatever buyer the government can find.
Others say the administration should find a partner, maybe a savvy investor such as Warren Buffett or an equity firm such as Oaktree Capital to operate the businesses for a generous share of any profits on the condition that the government gets its money first.
And some believe Obama should just stick the shares deep into a desk drawer and let the next president worry about an exit strategy. GM and Chrysler will either fail again or become corporate home runs. Only time will tell.
The administration says significant government involvement in GM ends with its efforts to reconstitute the company’s board of directors, which would happen as part of an expected bankruptcy filing by Monday.
White House Press Secretary Robert Gibbs reiterated Friday that Obama did not want to run auto companies.
That’s the right approach, said David Cole, chairman of the Center for Automotive Research.
“Our government doesn’t have a clue about what manufacturing is or how to manage it,” Cole said.
If the Obama administration resists any inclination to meddle in the operations of these companies, taxpayers have a chance to recoup a substantial amount of money they poured into the auto industry, Cole said.
7. The future
Just how quickly GM can move through the bankruptcy process is the next question.
Experts say Chrysler’s case is progressing more quickly and smoothly than expected, but add that GM’s case is larger and more complex.
Resolving GM’s case quickly will benefit the manufacturer as well as the overall economy, Graber said.
“Until the bankruptcy is settled, there’s a lot of uncertainty out there,” he said.
The government has said it wants GM’s trip through bankruptcy to be quick, and various stakeholders will have to accept sweeping changes.
Still, the future of the auto giant — and its significant presence in Western New York — is shrouded in questions.
The answers matter to everyone — active and retired workers, dealers and suppliers, and, most importantly, to car buyers.
GM has an engine plant with more than 1,000 jobs in the Town of Tonawanda. Suppliers with a local presence, including Delphi Corp., American Axle & Manufacturing, and other smaller companies ship products to GM. In the eight counties of Western New York, 48 dealerships sell new GM vehicles.
And retirees rely on the automaker for health benefits and pensions.
Here is a look at what might unfold:
1. Employees
Members of the United Auto Workers last week approved revisions to their 2007 labor contract with GM, with 74 percent voting in favor.
If GM went bankrupt, the union felt, it was better to have an amended contract in place.
A lot of local jobs are at stake. The Tonawanda plant has about 1,140 employees, including about 1,010 hourly workers.
About 360 of the hourly workers are on layoff.
The amended contract calls for suspending workers’ cost-of-living adjustments and suspending performance bonuses planned for this year and 2010.
It also eliminates the chance of a strike against GM until 2015 and shortens workers’ break times. A new round of buyout and early retirement offers was included.
Garry Graber, a partner in the Hodgson Russ law firm, doubts the contract will be altered in bankruptcy court.
“A judge won’t change the labor contract unless the company asks them to,” he said.
And he doesn’t expect GM to ask for changes, since the contract was just agreed to.
2. Retirees
The revised contract calls for reducing retirees’ health benefits in areas such as dental and vision programs.
The reduced benefits could lead to an “induced effect” on retirees, said George Palumbo, an economist at Canisius College. If they have to spend more on health care costs, they might cut back their spending in other areas, affecting the local economy, he said.
Retirees will have a major interest in the future version of GM: The union’s retiree health care trust will have a 17.5 percent stake in the company.
3. Plants
GM is downsizing its U. S. manufacturing and plans to announce Monday the closing of 14 plants by the end of 2010 to reduce its capacity and costs.
The Tonawanda plant probably will not be targeted, according to Art Wheaton, director of labor studies at Cornell University’s School of Industrial and Labor Relations in Buffalo.
“They can build more than one type of engine,” he said. “They’re not a one-trick wonder.”
Paul Lacy, who analyzes powertrain operations for IHS Global Insight, was less sure.
The Tonawanda plant is “certainly more vulnerable than some of the others,” he said, citing GM’s decision earlier this year to delay indefinitely a diesel engine line that had been announced for the site.
“Without the previously planned 4.5 liter diesel, the plant seems to be without purpose,” he said.
The plant closings will be costly to their home communities, eliminating about 21,000 jobs.
4. Suppliers
Even before bankruptcy talk began to swirl around GM and Chrysler LLC, suppliers to the auto industry were financially strained. The sharp downturn in auto sales has led to less production, so the automakers need fewer parts.
Both Chrysler and GM plan to idle many of their manufacturing operations for several weeks this summer to reduce their vehicle inventories. Those cutbacks will be felt through the chain, as suppliers cope with reduced business.
“The backward linkage [from automakers to suppliers] is extensive,” Palumbo said.
A GM bankruptcy filing could create more pain for suppliers, depending on the payments they collect. Suppliers might not get paid, or may have to settle for pennies on the dollar in compensation, Wheaton said. “It depends on what deal they cut.”
The federal government’s $5 billion Supplier Support Program is designed to help “tier one” suppliers that directly serve GM and Chrysler stay out of bankruptcy. Some suppliers have called for expanding its eligibility.
Gibraltar Industries supplies both GM and Chrysler, and both companies are current in their payments, said Ken Houseknecht, a Gibraltar spokesman.
While Gibraltar has good relationships with both automakers, the company over the years has diversified, lessening its reliance on the auto industry’s sales trends, he said.
The automakers have a “mutually dependent relationship” with many of their suppliers, Graber said.
“The manufacturer needs them as much as they need the manufacturer,” he said.
It is in GM’s interest to ensure its suppliers survive, he said, but there are limits to how much support it can provide to them.
The Center for Automotive Research believes the survival of the suppliers, like the dealers, requires a quick bankruptcy process.
“If GM and Chrysler are able to emerge from bankruptcy and resume operations within 60 to 90 days, the supplier sector — aided by the U. S. government — could remain viable,” its report said.
Delphi has been in bankruptcy for years, but there is a twist to its situation.
GM intends to reacquire five of Delphi’s operations, including its Lockport and Rochester plants, that were part of GM before the Delphi spinoff a decade ago.
5. Dealers
GM already informed more than 1,100 dealers that it will not renew their franchise agreements as of October 2010. On top of those reductions, it plans to cut ties with its Saturn, Hummer and Saab brands, and drop Pontiac altogether.
Saturn, Hummer and Saab all could survive under new owners. GM intends to concentrate on its Chevrolet, Cadillac, Buick and GMC brands.
Since auto dealers are protected by state franchise laws, GM dealers targeted for shutdown could go to court. But bankruptcy law trumps those franchise laws, giving a GM in Chapter 11 more sway in making decisions about its dealer network.
It’s “very possible” a bankrupt GM could seek to move up the termination date for the targeted dealers or add dealerships to the target list, said Michelle Krebs, senior industry editor with Edmunds.com.
When Chrysler LLC filed for bankruptcy in late April, it named 789 dealerships it planned to drop and set June 9 as the cutoff date. Chrysler LLC is not buying back dealers’ unsold vehicles and parts but has pledged to help arrange the transfer of those items to other dealerships.
Would consumers still buy cars and trucks from a bankrupt GM?
That was a top concern when the bankruptcy threat surfaced for Chrysler and GM. The Obama administration pledged the government would back the warranties of newly purchased GM and Chrysler vehicles to quell consumers’ fears.
It is difficult to pinpoint just how much Chrysler’s bankruptcy filing has hurt its sales, Krebs said, given the industry’s poor overall sales climate.
As for GM, “some customers don’t even know which brands belong to General Motors,” she said. But if bankruptcy becomes a reality, she added, GM dealers likely will field more questions from informed customers about warranties and service protections.
The Center for Automotive Research in Michigan studied Chrysler’s bankruptcy and GM’s potential filing. It distinguished between a process finished within 60 to 90 days, and a drawn-out, more damaging process.
“A prolonged hibernation by GM would put an unbearable financial strain on many suppliers and dealer franchises,” the report said.
6. The government
You own an auto company. What do you do now?
The Obama administration — and by default, taxpayers — must answer that question now that the federal government is about to take big stakes in two of the nation’s storied industrial companies and their joint financing arm. Based on the latest bankruptcy and bailout plans, the government will hold 72.5 percent of GM, 8 percent of Chrysler and 35 percent or more of GMAC Financial Services, the car loan business.
Ideas for what to do with those shares are colored by both politics and investment philosophy, and they’re sure to be debated.
Some economists and financiers believe President Obama should dump the stock almost immediately, to whatever buyer the government can find.
Others say the administration should find a partner, maybe a savvy investor such as Warren Buffett or an equity firm such as Oaktree Capital to operate the businesses for a generous share of any profits on the condition that the government gets its money first.
And some believe Obama should just stick the shares deep into a desk drawer and let the next president worry about an exit strategy. GM and Chrysler will either fail again or become corporate home runs. Only time will tell.
The administration says significant government involvement in GM ends with its efforts to reconstitute the company’s board of directors, which would happen as part of an expected bankruptcy filing by Monday.
White House Press Secretary Robert Gibbs reiterated Friday that Obama did not want to run auto companies.
That’s the right approach, said David Cole, chairman of the Center for Automotive Research.
“Our government doesn’t have a clue about what manufacturing is or how to manage it,” Cole said.
If the Obama administration resists any inclination to meddle in the operations of these companies, taxpayers have a chance to recoup a substantial amount of money they poured into the auto industry, Cole said.
7. The future
Just how quickly GM can move through the bankruptcy process is the next question.
Experts say Chrysler’s case is progressing more quickly and smoothly than expected, but add that GM’s case is larger and more complex.
Resolving GM’s case quickly will benefit the manufacturer as well as the overall economy, Graber said.
“Until the bankruptcy is settled, there’s a lot of uncertainty out there,” he said.
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